What Happens If You’re Listed as a Pattern Day Trader? (Consequences & Solutions)

Are you suddenly facing restrictions on your brokerage account? Did you just get a message saying you’ve been “flagged as a pattern day trader”? If so, you’re probably wondering what the heck happened and what this means for your trading activities.

I’ve helped many traders navigate these waters, and today I’ll break down everything you need to know about being labeled a pattern day trader (PDT) and how to deal with it.

What Is Pattern Day Trading?

Before diving into the consequences, let’s make sure we’re on the same page about what pattern day trading actually is

A day trade happens when you

• Buy and sell the same stock or ETF on the same trading day
• Open and close the same options contracts within a single trading day

According to FINRA regulations, you become a pattern day trader when:

• You make 4 or more day trades within 5 trading days
• Those day trades represent more than 6% of your total trading activity during that period

It’s important to note that the trading day ends at 8 PM ET Any trades made during overnight hours (between 8 PM-12 AM ET) will count toward the next trading day

Immediate Consequences of Being Listed as a Pattern Day Trader

So what actually happens when your account gets flagged? Here are the immediate effects:

1. The $25,000 Minimum Equity Requirement

This is the big one. Once flagged as a pattern day trader, you must maintain a minimum equity of $25,000 in your account at all times. This isn’t just a one-time thing – it’s a permanent requirement based on FINRA regulations.

The $25,000 must be in your account at the start of each trading day based on the previous day’s closing value. If your account dips below this threshold and you attempt another day trade, you’ll face further restrictions.

2. Position Closing Only Restriction

If your account falls below the $25,000 requirement while flagged as a PDT and you attempt another day trade, your account will likely be restricted to “position closing only.” This means:

• You can sell stocks you already own
• You can close options positions you already have
• You CANNOT open new positions of any kind

This is basically the brokerage putting your account in timeout until you address the situation.

3. Paused Participation in Certain Programs

At some brokerages like Robinhood, being flagged as a PDT will also cause:

• Pause in participation in Stock Lending programs
• Suspension from Brokerage Cash Sweep programs (where you earn interest on uninvested cash)

This happens because funds in these programs typically don’t count toward the $25,000 minimum equity requirement.

Long-Term Implications of the PDT Flag

Being listed as a pattern day trader isn’t just a temporary inconvenience – it can have lasting effects on your trading:

The Flag Follows You (Usually)

Most brokerages now keep the PDT flag on your account indefinitely. This is a policy change that took effect at Robinhood in September 2023, and many other brokers have similar policies.

PDT Flags Apply at the User Level

If you have multiple accounts with the same brokerage, the PDT flag typically applies at the user level, not just the individual account. This means if one of your margin accounts gets flagged, switching another account to margin will also carry the PDT flag.

Impact on Trading Strategy

Being flagged forces you to either:

1. Maintain the $25,000 minimum at all times
2. Completely change your trading strategy to avoid day trades
3. Consider alternative account types or brokerages

Your Options After Being Listed as a Pattern Day Trader

Okay, so you’ve been flagged. What now? You have several options:

1. Deposit Additional Funds

The most straightforward solution is to deposit enough money to bring your account value above $25,000. This will allow you to continue day trading without restrictions.

Keep in mind that portfolio value excludes:

• Crypto positions
• Futures positions
• Available margin
• Cash at program banks

Only your actual securities and cash in the account count toward the $25,000 requirement.

2. Use Your One-Time Flag Removal

Most brokerages offer a one-time courtesy removal of your PDT flag. At Robinhood, for example, you can request this as long as you haven’t already used it before.

This is basically your “get out of jail free” card – use it wisely! After using it, you’ll need to be extremely careful not to trigger the PDT flag again, as you won’t get another chance at removal.

3. Switch to a Cash Account

This is probably the most practical solution for most traders who don’t have $25,000. PDT rules only apply to margin accounts, not cash accounts.

By switching to a cash account:

• You can day trade without PDT restrictions
• You regain access to Stock Lending and Cash Sweep programs
• You won’t need to maintain the $25,000 minimum

The main disadvantage is that you’ll need to wait for trades to settle before using those funds again (typically T+2 for stocks, meaning two business days after the trade).

4. Monitor Your Day Trades Carefully

If you decide to keep your margin account, turn on Pattern Day Trade Protection features offered by your broker. These provide alerts when you’re approaching your day trade limit.

At Robinhood, for example, you can check your day trade counter by going to:
Account → Menu → Settings → Investing → Day trades

5. Wait It Out (Not Recommended)

In theory, you could simply stop day trading and wait for the PDT designation to expire. However, with most brokerages now keeping PDT flags indefinitely, this isn’t really a viable strategy anymore.

Real-World Examples of Day Trading Scenarios

Let’s look at some common scenarios to understand what counts as a day trade:

Example 1: Simple Day Trade

You start with zero shares of ABC stock and then:

• Buy 1 ABC
• Sell 1 ABC

This counts as 1 day trade because you bought and sold the same stock on the same day.

Example 2: Multiple Buys and Sells of the Same Stock

You start with zero shares of ABC and then:

• Buy 1 ABC
• Buy 2 ABC
• Buy 7 ABC
• Sell 1 ABC
• Sell 5 ABC
• Sell 4 ABC

This still only counts as 1 day trade because there’s only one change in direction from buying to selling.

Example 3: Extended Hours Trading

You start with zero shares of ABC and then:

• Buy 5 ABC at 8:01 PM ET on Monday
• Sell 1 ABC at 10 AM ET on Tuesday

This counts as 1 day trade because both transactions occur within the same trading day (the 8:01 PM purchase counts toward Tuesday’s trading day).

Example 4: Multiple Direction Changes

You start with zero shares of ABC and then:

• Buy 50 ABC
• Sell 15 ABC
• Sell 35 ABC
• Buy 10 ABC
• Sell 10 ABC

This counts as 2 day trades because there are two changes in direction from buys to sells.

How to Avoid Being Flagged as a Pattern Day Trader

If you don’t have $25,000 to maintain in your account, here are some strategies to avoid the PDT designation:

1. Use a Cash Account for Day Trading

Again, cash accounts aren’t subject to PDT restrictions. Just remember you’ll need to wait for funds to settle between trades.

2. Implement a Swing Trading Strategy

Instead of buying and selling on the same day, hold positions overnight or for several days. This completely avoids day trade counting.

3. Use Multiple Brokerages

Some traders open accounts at different brokerages to increase their available day trades. However, this can complicate your tax situation and portfolio management.

4. Plan Your Trades Carefully

Limit yourself to no more than 3 day trades in any 5-trading-day period. Use your broker’s day trade counter to track your activity.

5. Enable Pattern Day Trade Protection

Most brokers offer warnings when you’re about to make a trade that would flag you as a pattern day trader. At Robinhood, you can enable this in your settings.

My Personal Experience

I’ve worked with many clients who’ve been surprised by PDT restrictions. One common scenario is when traders don’t realize that multiple executions of a large order can count as separate day trades.

For example, if you place an order to buy 10,000 shares of a low-volume stock, it might execute in multiple smaller chunks. If you then place a sell order before the buy is completely filled, each sell order could pair with a buy order, resulting in multiple day trades.

Bottom Line: Is Day Trading Worth It?

Being labeled a pattern day trader isn’t the end of the world, but it does come with significant restrictions if you don’t have $25,000 to maintain in your account.

Before you jump into frequent day trading, ask yourself:

• Do I have enough capital to maintain the $25,000 minimum?
• Am I prepared to switch to a cash account if needed?
• Do I understand the risks involved with frequent trading?
• Have I developed a solid trading strategy with proper risk management?

Day trading is inherently risky and statistically, most day traders lose money. The PDT rule was actually created to protect inexperienced traders from excessive risk.

Whether you’re just starting out or you’ve already been flagged, understanding these rules will help you navigate the trading landscape more effectively.

If you are flagged as a pattern day trader (PDT) by a brokerage, you must maintain at least a $25,000 minimum account equity to continue day trading. Exceeding this threshold will result in your account being restricted, which can include a 90-day freeze on opening new positions, unless you deposit funds to meet the minimum equity requirement or switch to a cash account.

To avoid being flagged as a pattern day trader, you can limit yourself to fewer than four day trades in a five-business-day period or ensure your account has at least $25,000 in settled equity.